Fed up of your 9 to 5? Here's how you could get financial freedom sooner

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Giving up the day job is a dream for many people who want the freedom to do what they want, when they want. And it could be possible sooner than you think. Here’s what to think about if you want to make that dream a reality.

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What does early retirement mean for you?

First, you need to think about what your end goal is. What do you want your future to look like? For some people, early retirement means moving to part-time work in their 50s, for a few it might mean quitting work completely and travelling the world in their 30s. And for many it’s something in between the two. 

Your attitude towards early retirement might even change throughout your life as your circumstances change. For example, one recent study found the number of people who wanted to give up work between the age of 50 and State Pension age had more than doubled from 4 per cent before the pandemic to 10 per cent after.

Whatever you have in mind, it’s important to set a clear goal – then you can start planning for it.

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How much might you need to make it happen?

This will vary depending on what you decide your end goal is, and what you want to do with your life after work.

It’s not just the cost of living you need to cover. You’ll also need to take into account paying off any outstanding debts including mortgages and it’s a good idea to have some money set aside for emergencies as well.

A good place to start is the Retirement Living Standards, created by the Pension and Lifetime Savings Association. They give you a rough estimate of how much you might need each year based on the kind of lifestyle you’d like to have in retirement - minimum, moderate or comfortable. They even take into account things like how much you need to cover birthday presents and clothing. 

Here are some typical costs for a couple – of course it’s going to be slightly different for everyone and these figures only apply to people living outside of London. You can see the costs for an individual on the Retirement Living Standards website.

 

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So, for example, a couple looking to have a moderate lifestyle would aim for £29,100 per year. And that should give them enough to afford a three year old car to be replaced every ten years, a two week holiday in Europe and a weekend away in the UK, and some left over to help with home maintenance and decorating.

It’s also important to remember that people are living longer these days. So this annual income may need to last you longer than you think.

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How to save for it

When you’ve got a plan and you know how much you need, you can focus on the hard but rewarding part – saving. 

You might have heard of the ‘FIRE’ movement – which stands for ‘Financial Independence, Retire Early’ – where people aim to save as much as possible for retirement in a short space of time, often living pretty frugally to pull it off. Something worth considering if your retirement plans are quite ambitious. 

Your savings plans may not need to be as strict as that, but the reality is making minimum payments into your pension pot is unlikely to be enough – especially when you’re saving for a big goal like retirement. 

So think about how much you can feasibly put aside every month to put towards your savings, or if you could consider topping up what you already save. Even taking small steps like paying a bit more into your pension plan could make a big difference in the long term. Especially when you take into account the boost your pension plan could give your retirement savings…

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Take full advantage of what your pension plan has to offer

Contributing to a pension plan is a tax-efficient way to save for your future, and it costs less than you might think when you take into account the tax benefits you can get. 

In a nutshell, your payments are topped up by HMRC. The amount you get is largely based on the rate of income tax you pay. For example, if you pay basic rate income tax you get 20% relief. And therefore it normally only costs you £80 to save £100 into your pension plan. If you pay higher rates of tax, saving more can cost you even less.

Plus, thanks to auto-enrolment, your employer may be chipping in as well. Some might even offer matched contributions, where the more you pay in, the more they will too.  

So it makes sense to save as much as you can comfortably afford in to your workplace pension, and consider paying in extra when you get a pay rise or a bonus. That way you can reap the benefits your pension plan offers and potentially accelerate the ability to have financial freedom sooner rather than later.

To find out if your pension savings are on track to meet your retirement goals, try our pension calculator.

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Have a mix of savings

Bear in mind that you can’t normally access your pension savings until you’re 55 and this is due to rise to 57 from 2028. So although your pension plan is a great way to save for retirement, the reality of retiring early is you might need to access other savings before then. That’s where having a good mix of savings can come in handy. Find out more in Pension or savings? Getting the right mix.

ISAs (Individual Savings Accounts), bank account savings and other investments can all help you reach your future goals and could help you bridge the gap until you’re able to access your pension savings from age 55 or you get your State Pension. 

Bear in mind your State Pension alone probably won’t give you enough income to live on. For more on the State Pension - including how much you can get and when you can claim it – read our State Pension article.

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Make sure your investments match your goals

If your savings are tied up in investments (remember – that includes your pension plan), it’s a good idea to regularly review them to make sure they’re still right for you, particularly if you’re managing them yourself.

You want to be comfortable that what you’re invested in is in line with your goals and your attitude to risk – which are likely to change at different points throughout your life. If you take more risk with your investments, there’s the potential for higher long-term returns, although on the flip side, there’s also the potential for greater losses, so it’s important you get the balance right. 

If you’re not comfortable managing your own investments, there are options available, like lifestyle profiles or our sustainable multi asset investment options, if you want to take a step back and let the experts do the work for you. 

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Getting started

It’s exciting to plan for the future, but getting started can be overwhelming if you feel like you’ve got a long way to go. Just remember that taking small steps like creating a plan or topping up your pension contributions can really add up and make a big difference to your financial future.

You can manage and review your Standard Life pension investments by logging in or registering online or by downloading our app.
 

Pension plans are investments. They can go down as well as up in value and you could get back less than was paid in.

Tax rules and legislation may change and your individual circumstances and where you live in the UK will have an impact on the tax you pay.

Before making any big decisions about your retirement, it’s best to speak to a financial adviser. There will likely be a cost for this.

The information here is based on our understanding in August 2021 and should not be taken as financial advice.